Rising interest rates have some investors rethinking their portfolios, in particular, the fixed-income portion. For Neville Joanes, WealthBar's chief investment officer, that could mean a shift in the robo-adviser's portfolio away from government bonds that carry interest-rate risk. In response to another investing concern, he says the Vancouver-based company has added more environmentally friendly investment options to its mix.
WealthBar, which launched in November, 2014, has close to $200-million in assets under management across various exchange-traded funds (ETFs) and private investment funds, which include assets such as bricks-and-mortar real estate, mortgages, private equity and commodities. Its balanced ETF portfolio has returned about 10 per cent so far this year and more than 23 per cent since the launch, while the private-asset funds have returned about 7 per cent and just under 19 per cent, respectively. The Globe and Mail recently spoke to Mr. Joanes about what the firm has been buying and a social-media stock he wished he bought in his personal portfolio.
Explain briefly the strategy at WealthBar.
As a digital financial adviser focused on financial planning, we use strategic asset allocation based on a long-term outlook when constructing our investment portfolios. The construction blocks for the portfolios are ETFs and private investment funds. We do not make tactical shifts to the portfolio.
What concerns are you hearing from investors today?
Many of our clients are preretirees. They've been around the block and experienced the ups and downs of the markets. They're anxious right now, given that the markets are at all-time highs and the fact that they've seen some bear markets … They are concerned about a larger correction. Their focus is to not have another 2008. Even though it was almost 10 years ago, it's still recent in their minds.
What's your take on where the markets are heading?
We still think the U.S. will continue to drive growth and that international markets will follow, along with Canada. We expect interest rates to rise in the long term. Provided that it's done in a manner that gets feedback and is based on strong economic results, we expect markets to move up slowly.
Do you see a correction coming?
I do expect there to be some kind of correction – which is about a 10-per-cent move in the market in a short period – but I don't know what will trigger it and when that will happen.
What investments have you been buying lately?
Our clients have been asking for more ethical investing options. A predominant theme that came up was a green alternative to [conventional] energy. In October, we added the PowerShares Cleantech Portfolio ETF, ticker PZD. It takes a macro view to green investment by investing in companies focused on areas such as renewable energy, water purification, logistics and transportation. In the summer, as interest rates rose, we increased holdings of BMO Laddered Preferred Share Index ETF, ticker ZPR. We made sure its allocation for clients' accounts were at, or above, the model target. It fits with our view on a rising interest-rate environment, to reduce exposure to interest-rate risk and equity risk by holding preferred shares.
What have you been selling?
We haven't been selling anything off as of late but, as interest rates rise, we are concerned about fixed-income exposure and are evaluating shifting our exposure from government bonds that carry interest-rate risk to a high-interest savings account ETF. For example, we might increase our exposure to PSA, the Purpose High Interest Savings ETF, and reduce our exposure to the Vanguard Short-Term Bond ETF, ticker VSB. We are still evaluating it.
Name one stock you wish you bought?
From a personal investing perspective, I wish I bought Facebook. They've been aggressive in their acquisitions and have a great revenue model. They're one of the few growth stories out there that have positive earnings per share that have regularly beaten forecasts. WealthBar has exposure to Facebook in its ETF portfolios through Horizons S&P 500 Index ETF, but as an individual stock holding, it's one I wish I bought.
This interview has been edited and condensed.